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Xerox Holdings (XRX): Hedge Funds Taking Some Chips Off The Table

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Xerox Holdings Corporation (NYSE:XRX) based on that data and determine whether they were really smart about the stock.

Is Xerox Holdings Corporation (NYSE:XRX) a bargain? The smart money was taking a bearish view. The number of long hedge fund bets fell by 6 recently. Xerox Holdings Corporation (NYSE:XRX) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. Our calculations also showed that XRX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to view the new hedge fund action encompassing Xerox Holdings Corporation (NYSE:XRX).

How are hedge funds trading Xerox Holdings Corporation (NYSE:XRX)?

At Q2’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in XRX a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is XRX A Good Stock To Buy?

Among these funds, Icahn Capital LP held the most valuable stake in Xerox Holdings Corporation (NYSE:XRX), which was worth $358.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $96.4 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Icahn Capital LP allocated the biggest weight to Xerox Holdings Corporation (NYSE:XRX), around 1.82% of its 13F portfolio. Falcon Edge Capital is also relatively very bullish on the stock, earmarking 1.25 percent of its 13F equity portfolio to XRX.

Due to the fact that Xerox Holdings Corporation (NYSE:XRX) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies who sold off their full holdings by the end of the second quarter. It’s worth mentioning that Kenneth Mario Garschina’s Mason Capital Management dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $21.3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dumped about $13.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks similar to Xerox Holdings Corporation (NYSE:XRX). We will take a look at Cohen & Steers, Inc. (NYSE:CNS), Energizer Holdings, Inc. (NYSE:ENR), SVMK Inc. (NASDAQ:SVMK), Stifel Financial Corp. (NYSE:SF), Ormat Technologies, Inc. (NYSE:ORA), Kirby Corporation (NYSE:KEX), and The Hain Celestial Group, Inc. (NASDAQ:HAIN). This group of stocks’ market values resemble XRX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CNS 21 86926 1
ENR 25 277086 4
SVMK 33 309964 4
SF 21 158221 4
ORA 19 179434 10
KEX 20 375194 -1
HAIN 24 829403 4
Average 23.3 316604 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $317 million. That figure was $679 million in XRX’s case. SVMK Inc. (NASDAQ:SVMK) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Xerox Holdings Corporation (NYSE:XRX) is more popular among hedge funds. Our overall hedge fund sentiment score for XRX is 72.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on XRX as the stock returned 23.3% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.